-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IOGHPnK+Rjo+ATNwgJ6jToP7w4hNjHBy58BfIIpqaXNdQOqMwOlMWykEDpg3xeku 79DDgIBow+Y4dBaIIFv9Og== 0000950123-01-508187.txt : 20020410 0000950123-01-508187.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950123-01-508187 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE PROPERTY ASSOCIATES 10 INC CENTRAL INDEX KEY: 0000778214 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133559213 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19156 FILM NUMBER: 1781513 BUSINESS ADDRESS: STREET 1: 50 ROCKEFELLER PLZ CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2124921100 MAIL ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: CAREY PROPERTY INVESTORS L P DATE OF NAME CHANGE: 19600201 FORMER COMPANY: FORMER CONFORMED NAME: CORPORATE PENSION INVESTORS DATE OF NAME CHANGE: 19600201 10-Q 1 y54849e10-q.txt CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q For the quarterly period ended SEPTEMBER 30, 2001 of CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED CPA(R):10 A MARYLAND Corporation IRS Employer Identification No. 13-3559213 SEC File Number 0-19156 50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020 (212) 492-1100 CPA(R):10 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the Act. CPA(R):10 HAS NO SECURITIES registered on any exchanges. CPA(R):10 does not have any Securities registered pursuant to Section 12(b) of the Act. CPA(R):10 (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. CPA(R):10 has no active market for common stock at November 12, 2001. CPA(R):10 has 7,621,656 shares of common stock, $.001 Par Value outstanding at November 12, 2001. CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED INDEX
Page No. -------- PART I ------ Item 1. - Financial Information* Condensed Consolidated Balance Sheets, as of December 31, 2000 and September 30, 2001 2 Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2000 and 2001 3 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 2001 4 Notes to Condensed Consolidated Financial Statements 5-6 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 PART II - Other Information ------- Item 3. - Quantitative and Qualitative Disclosures About Market Risk 9 Item 4. - Submission of Matters to a Vote of Security Holders 9 Item 6. - Exhibits and Reports on Form 8-K 9 Signatures 10
*The summarized financial information contained herein is unaudited; however, in the opinion of management, all adjustments necessary for a fair presentation of such financial information have been included. -1- CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED PART I Item 1. - FINANCIAL INFORMATION CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2000 September 30, 2001 ----------------- ------------------ (Note) (Unaudited) ASSETS: Land and buildings, net of accumulated depreciation of $17,731,796 at December 31, 2000 and $17,809,630 at September 30, 2001 $ 79,925,070 $ 72,428,004 Net investment in direct financing leases 16,758,447 16,758,447 Equity investment 14,111,738 14,902,572 Assets held for sale 625,000 - Cash and cash equivalents 4,683,742 6,628,226 Other assets 1,047,717 1,261,199 ------------ ------------ Total assets $117,151,714 $111,978,448 ============ ============ LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY: Liabilities: Mortgage notes payable $ 58,456,566 $ 51,038,243 Accrued interest 245,742 344,865 Accounts payable and accrued expenses 305,435 184,326 Accounts payable to affiliates 3,500,121 4,357,605 Dividends payable 1,360,466 1,365,039 Prepaid rental income 42,134 49,376 ------------ ------------ Total liabilities 63,910,464 57,339,454 ------------ ------------ Minority interest 2,181,062 2,109,440 ------------ ------------ Commitments and contingencies Shareholders' Equity: Common stock, $.001 par value; 40,000,000 shares authorized; 7,633,558 shares issued and outstanding at December 31, 2000 and September 30, 2001 7,633 7,633 Additional paid-in capital 66,530,408 66,530,408 Dividends in excess of accumulated earnings (15,380,073) (13,910,707) ------------ ------------ 51,157,968 52,627,334 Less, common stock in treasury, at cost, 11,902 shares at December 31, 2000 and September 30, 2001 (97,780) (97,780) ------------ ------------ Total shareholders' equity 51,060,188 52,529,554 ------------ ------------ Total liabilities, minority interest and shareholders' equity $117,151,714 $111,978,448 ============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements. Note: The condensed consolidated balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. -2- CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2000 2001 2000 2001 ------------ ------------ ------------ ------------ Revenues: Rental income $ 2,855,694 $ 3,023,171 $ 9,068,624 $ 9,499,072 Interest income from direct financing leases 564,440 628,969 1,684,715 1,803,904 Interest and other income 39,075 48,854 127,918 300,530 ------------ ------------ ------------ ------------ 3,459,209 3,700,994 10,881,257 11,603,506 ------------ ------------ ------------ ------------ Expenses: Interest 1,377,628 1,269,332 4,158,914 3,745,226 Depreciation and amortization 597,459 607,685 1,785,572 1,818,604 General and administrative 323,735 502,222 1,159,141 1,191,818 Property expenses 500,941 421,281 1,447,642 1,341,913 Impairment loss 225,798 -- 225,798 -- ------------ ------------ ------------ ------------ 3,025,561 2,800,520 8,777,067 8,097,561 ------------ ------------ ------------ ------------ Income before minority interest, income from equity investment and gain on sale 433,648 900,474 2,104,190 3,505,945 Minority interest in income (171,116) (242,685) (503,040) (751,865) ------------ ------------ ------------ ------------ Income before income from equity investment and gain on sale 262,532 657,789 1,601,150 2,754,080 Income from equity investment 459,517 469,486 1,644,841 1,762,909 ------------ ------------ ------------ ------------ Income before gain on sale 722,049 1,127,275 3,245,991 4,516,989 Gain on sale of real estate -- 1,082,409 22,750 1,043,989 ------------ ------------ ------------ ------------ Net income $ 722,049 $ 2,209,684 $ 3,268,741 $ 5,560,978 ============ ============ ============ ============ Basic and diluted earnings per common share (7,621,656 shares outstanding, basic and diluted) $ .09 $ .29 $ .43 $ .73 ============ ============ ============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements. -3- CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, -------------------------------- 2000 2001 ------------ ------------ Cash flows from operating activities: Net income $ 3,268,741 $ 5,560,978 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,785,572 1,818,604 Income from equity investment in excess of dividends received (696,574) (792,099) Minority interest in income 503,040 751,865 Straight-line rent adjustments 8,633 21,043 Impairment loss 225,798 -- Gain on sale of real estate (22,750) (1,043,989) Net change in operating assets and liabilities 454,066 467,811 ------------ ------------ Net cash provided by operating activities 5,526,526 6,784,213 ------------ ------------ Cash flows from investing activities: Proceeds from sale of real estate 22,750 8,050,738 Additional capitalized costs (18,687) (343,676) ------------ ------------ Net cash provided by investing activities 4,063 7,707,062 ------------ ------------ Cash flows from financing activities: Dividends paid (4,070,379) (4,087,039) Distributions paid to minority partner (638,242) (823,487) Prepayment of mortgage payable (594,916) (6,194,448) Payments of mortgage principal (1,056,208) (1,223,875) Payment of financing costs -- (217,942) ------------ ------------ Net cash used in financing activities (6,359,745) (12,546,791) ------------ ------------ Net (decrease) increase in cash and cash equivalents (829,156) 1,944,484 Cash and cash equivalents, beginning of period 3,293,827 4,683,742 ------------ ------------ Cash and cash equivalents, end of period $ 2,464,671 $ 6,628,226 ============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements. -4- CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. All significant intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results of the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Note 2. Transactions with Related Parties: The Company incurred asset management fees payable to its Advisor, Carey Asset Management Corp., of $193,175 and $195,950 for the three-month periods ended September 30, 2000 and 2001, respectively, and $579,500 and $588,428 for the nine-month periods ended September 30, 2000 and 2001, respectively, with performance fees in like amount. General and administrative expense reimbursements were $189,817 and $165,671 for the three-month periods ended September 30, 2000 and 2001, respectively, and $580,586 and $509,738 for the nine-month periods ended September 30, 2000 and 2001, respectively. Note 3. Lease Revenues: The Company's operations consist of the direct and indirect investment in and leasing of industrial and commercial real estate. The financial reporting sources of leasing revenues for the nine-month periods ended September 30, 2000 and 2001 are as follows:
2000 2001 ------------ ------------ Per Statements of Income: Rental income from operating leases $ 9,068,624 $ 9,499,072 Interest from direct financing leases 1,684,715 1,803,904 Adjustments: Rental income attributable to minority interests (1,460,771) (1,612,913) Share of interest income from equity investment direct financing lease 3,421,006 3,461,405 ------------ ------------ $ 12,713,574 $ 13,151,468 ============ ============
For the nine-month periods ended September 30, 2000 and 2001, the Company earned its net lease revenues from its investments as follows:
2000 % 2001 % ----------- ----------- ----------- ----------- Marriott International, Inc. (a) $ 3,421,006 27% $ 3,461,405 26% Information Resources Incorporated (b) 2,187,010 17 2,465,652 19 The Titan Corporation (b) 1,614,391 13 1,670,005 13 New WAI, L.P./Warehouse Associates 1,093,559 9 1,208,631 9 EnviroWorks, Inc. 1,111,238 9 1,124,498 9 Wal-Mart Stores, Inc. 849,543 7 831,124 6 Kmart Corporation 737,200 6 669,553 5 Childtime Childcare Inc. 637,025 5 641,142 5 Electronic Data Systems Corporation 442,299 3 457,704 3 Other 620,303 4 621,754 5 ----------- ----------- ----------- ----------- $12,713,574 100% $13,151,468 100% =========== =========== =========== ===========
(a) Represents the Company's proportionate share of lease revenues from an equity investment. (b) Net of W. P. Carey & Co. LLC's minority interest. -5- CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) Note 4. Equity Investment: The Company owns an approximate 23.7% interest in Marcourt Investments Incorporated ("Marcourt") which net leases 13 Courtyard by Marriott hotels to a wholly-owned subsidiary of Marriott International, Inc. Summarized financial information of Marcourt is as follows: (in thousands)
December 31, September 30, ------------ ------------- 2000 2001 -------- -------- Assets (primarily net investment in direct financing lease) $148,777 $148,676 Liabilities (primarily mortgage notes payable) 91,268 87,683 Shareholders' equity 57,509 60,993
Nine Months Ended September 30, ------------------------------- 2000 2001 -------- -------- Revenue (primarily interest income from direct financing lease) $ 14,456 $ 14,624 Expenses (primarily interest expense) (7,369) (7,035) -------- -------- Net income $ 7,087 $ 7,589 ======== ========
Due to its rapidly amortizing debt, Marcourt's taxable income exceeds its distributable cash flow and such excess is projected to increase in the coming years. The projected inability to distribute 90% of its taxable income may impair Marcourt's ability to retain its REIT status in future years and result in the payment of federal income taxes by Marcourt. Management and the other Marcourt shareholders are evaluating the situation for potential resolutions including, but not limited to, a potential sale, refinancing or restructuring in order to enable Marcourt to retain its REIT status. Note 5. Gain on Sale of Real Estate: On September 29, 2001, the Company and Carey Institutional Properties Incorporated, an affiliate, each with 50% ownership interests as tenants-in-common, sold six retail properties leased to Wal-Mart Stores, Inc. for $14,891,154, net of costs, of which the Company's share was $7,445,577. The Company used $5,984,791 to satisfy its share of the outstanding balance of the mortgage loan. In connection with the sale, the Company recognized a gain of $1,082,409. Note 6. Accounting Pronouncement: In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the accounting and reporting for the impairment and disposal of long-lived assets and supersedes SFAS No. 121. SFAS No. 144 is effective January 1, 2002 and is not expected to have a significant impact on the Company. -6- CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION And RESULTS OF OPERATIONS The following information should be read in conjunction with Corporate Property Associates 10 Incorporated's ("CPA(R):10") condensed consolidated financial statements and notes thereto as of September 30, 2001, included in this quarterly report, and CPA(R):10's Annual Report on Form 10-K for the year ended December 31, 2000. This quarterly report contains forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievement of CPA(R):10 to be materially different from the results of operations or plan expressed or implied by such forward-looking statements. Accordingly, such information should not be regarded as representations by CPA(R):10 that the results or conditions described in such statements or the objectives and plans of CPA(R):10 will be achieved. RESULTS OF OPERATIONS: Net income for the three-month and nine-month periods ended September 30, 2001 increased by $1,488,000 and $2,292,000, respectively, as compared with net income for the three-month and nine-month periods ended September 30, 2000. The results for 2001 include a net gain on sales of real estate of $1,044,000. Additionally, the results for 2000 included an impairment loss, a noncash charge, of $226,000 recorded in connection with the writedown of a property. Excluding the effects of the impairment loss and net gains on sale of properties, income would have reflected increases of $179,000 and $1,045,000 for the comparable three-month and nine-month periods. The increases in income for both the three-month and nine-month periods were primarily due to increases in lease revenues (rental income and interest income from direct financing leases) and decreases in interest and property expenses. The increase in lease revenues was due to several scheduled rent increases in 2000 and 2001, including leases with EnviroWorks, Inc., The Titan Corporation, Information Resource Incorporated ("IRI"), and Electronic Data Systems Corporation. The decrease in interest expense was primarily due to the December 2000 refinancing of the mortgage loan on the IRI property at a lower rate of interest. The decrease in property expense was due, in part, to lower carrying costs on properties. Between December 1999 and June 2001, CPA(R):10 sold three vacant properties for which it had been paying real estate taxes and insurance premiums. In addition, CPA(R):10 entered into a net lease with Xerox Corporation in June 2001 for a property in Hot Springs, Arkansas that had been vacant. CPA(R):10 owns a 23.7% interest in Marcourt Investments Inc., which net leases 13 Courtyard by Marriott hotels to Marriott International, Inc. The lease with Marriott includes a provision for additional rents based on a percentage of sales, including room revenues, in excess of a specified amount at the hotel properties. Since the inception of the lease in 1992, the percentage of sales rents have increased each year. CPA(R):10 received a distribution in 2001 of $326,000 from Marcourt as its share of percentage of sales rents in 2001. Due to current economic conditions, there is no assurance that such rents will continue to increase. CPA(R):10 has leases with Kmart Corporation for three retail stores that also include percentage of rent provisions. The percentage of sales rents from the Kmart leases contribute annual revenues of approximately $365,000. As a result of the sale of six Wal-Mart Stores, Inc. properties in September 2001, CPA(R):10's annual lease revenues will decrease by approximately $1,040,000 (including percentage of sales rents of $280,000 in 2000). Annual debt service on the mortgage loans on the Wal-Mart properties was $781,000, and, as a result, annual cash flow (lease revenues less mortgage debt service) contributed by the Wal-Mart properties was approximately $259,000. The initial terms of the Wal-Mart leases were scheduled to expire in 2008. FINANCIAL CONDITION: Management believes that CPA(R):10 will generate sufficient cash from operations and, if necessary, from the proceeds of mortgage financings, to meet its short-term and long-term liquidity needs. CPA(R):10's cash balances have increased by $1,944,000 since December 31, 2000. Cash flows from operations of $6,784,000 were sufficient to fund dividends paid to shareholders of $4,087,000, distributions of $823,000 paid to the minority interests in two properties and scheduled mortgage principal payments of $1,224,000. -7- CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION And RESULTS OF OPERATIONS (Continued) CPA(R):10's investing activities for the nine months ended September 30, 2001 include $8,051,000 of proceeds from the sale of a vacant property in Texarkana, Arkansas and the sale of six retail stores leased to Wal-Mart Stores, Inc. CPA(R):10 has used $344,000 to fund capital improvements, including a roof replacement at a property in Denton, Texas leased to Kmart and costs for a 96,000 sq. ft. vacant property in Austin, Texas which is in the process of being retrofitted. Costs to complete the retrofit and fund possible tenant improvement allowances are being evaluated and are estimated to be in excess of $750,000. In addition to paying dividends to shareholders, distributions to minority interests and scheduled mortgage prepayments, CPA(R):10's financing activities included satisfying the mortgage loan on the Wal-Mart properties for $5,985,000 in connection with the sale of the properties. Since September 30, 2001, CPA(R):10 has refinanced the mortgage loan on the property leased to Warehouse Associates, which matured in 2001. During the fourth quarter, CPA(R):10 was able to refinance the Warehouse Associates properties for $9,500,000, and net of financing costs, pay off the existing mortgage and increase CPA(R):10's cash reserves by $2,295,000. Annual debt service on the new Warehouse Associates loan will approximate the debt service on the retired loan. Due to its rapidly amortizing debt, Marcourt's taxable income exceeds its distributable cash flow and such excess is projected to increase in the coming years. The projected inability to distribute 90% of its taxable income may impair Marcourt's ability to retain its REIT status in future years and result in the payment of federal income taxes by Marcourt. Management and the other Marcourt shareholders are evaluating the situation for potential resolutions including, but not limited to, a potential sale, refinancing or restructuring in order to enable Marcourt to retain its REIT status. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the accounting and reporting for the impairment and disposal of long-lived assets and supersedes SFAS No. 121. SFAS No. 144 is effective January 1, 2002 and is not expected to have a significant impact on CPA(R):10. CPA(R):10 was formed in 1990 with the expectation that shareholders' interests would be liquidated beginning eight to twelve years after the net proceeds of CPA(R):10's offering were substantially invested. The Advisor is currently evaluating CPA(R):10's liquidity alternatives. -8- CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED PART II Item 3. - Quantitative and Qualitative Disclosures about Market Risk Approximately $50,267,000 of the Company's long-term debt bears interest at fixed rates, and the fair value of these instruments is affected by changes in market interest rates. The following table presents principal cash flows based upon expected maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt. The interest rate on the variable rate debt as of September 30, 2001 was 7.75%. There has been no material change since December 31, 2000. (in thousands)
2001 2002 2003 2004 2005 Thereafter Total Fair Value ------- ----------- ----------- ----------- ----------- ----------- ------- ---------- Fixed rate debt $ 6,620 $ 1,354 $ 9,216 $ 3,001 $ 1,002 $ 29,074 $50,267 $49,904 Weighted average interest rate 8.775% 9.279% 9.676% 9.674% 8.933% 7.995% Variable rate debt $ 772 -- -- -- -- -- $ 772 $ 772
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the quarter ended September 30, 2001, no matters were submitted to a vote of Security Holders. Item 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None. (b) Reports on Form 8-K: During the quarter ended September 30, 2001, the Company was not required to file any reports on Form 8-K. -9- CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED 11/12/01 By: /s/ John J. Park ----------- ---------------------------------------- Date John J. Park Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) 11/12/01 By: /s/ Claude Fernandez ----------- ---------------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Accounting Officer) -10- -----END PRIVACY-ENHANCED MESSAGE-----